A novel approach to managing the risks of high-cost pharmaceutical therapies

To maintain competitive benefit packages and ensure access to cutting-edge treatments, self-insured employers must navigate a complex new landscape of unexpectedly high drug pricing, advances in clinical surveillance and treatment pathways, and innovative risk coverage options. Steve Gerst and Stas Samarin of PayRx explore the challenges and solutions. 

The rapidly rising cost of novel pharmaceuticals—particularly (i) cellular, and genetic therapies; (ii) treatments for rare and orphan diseases; and (iii) high-cost specialty medications for chronic conditions—poses a significant challenge for self-insured employers. One in 10 Americans suffers from a rare disease and 55 percent of drug spending is now attributed to specialty medicines.

New drugs may promise life-changing, or even life-saving, treatments but their high prices can threaten both employer and employee budgets, impacting the company’s financial health, and affecting the overall attractiveness and competitiveness of employers’ benefit offerings.

Technological advances in clinical surveillance and healthcare analytics allow for systematic patient monitoring to track key clinical indicators, improve patient safety, optimise care and, in many cases, re-think loss reserving. Surveillance data helps healthcare providers make optimal evidence-based decisions, often utilising artificial intelligence (AI) and machine learning to identify treatable diseases earlier, helping to extend life, better manage chronic conditions, and conserve resources. 

This white paper aims to provide self-insured employers with an understanding of the financial challenges associated with novel, high-cost medications and offers a comprehensive approach to managing the risks and costs associated with these therapies. It details the complexities of the problem, the impact on employers and employees, and offers practical solutions and recommendations for navigating this complex landscape, with insights into various risk coverage strategies. 

Factors contributing to rising drug prices

The high cost of novel, Food and Drug Administration (FDA)-approved therapies can be attributed to several factors, including the complexity and risks associated with drug development, limited competition, and the role of intermediaries in the supply chain. Pharmaceutical companies set prices based on what the market can bear, leading to exorbitant prices for groundbreaking treatments. 

Over 400 drugs on the market cost >$100K per year 

As an example, almost every new cancer drug on the market starts at more than $100,000 annually, with the median cost of some newly approved chronic therapies topping $257,000 per year. Many of the nearly 40 FDA-approved cellular and gene therapies now range in cost from $370,000 to $4.25 million, often for a one-time treatment. Of the record-breaking 71 new FDA-approved drugs in 2023, more than half were high-cost orphan drugs for rare diseases.

A 2022 study found that every year, the average wholesale price of newly released drugs is 20 percent higher compared to the prior year. With seven to 10 new cell and gene therapy approvals now expected per year, affordability becomes a critical issue for small to midsize employers. Given the substantial pipeline of new drugs in clinical testing, many more of these high-cost drug approvals can be expected. 

Today’s reimbursement options and underwriting models are not designed for this exploding market. Employers are constrained by limited data and difficulty forecasting these high-cost claims, which are often unexpected. This poses significant challenges for both employers and pharmaceutical manufacturers.

Importance of comprehensive coverage 

Providing comprehensive coverage for high-cost therapies without bankrupting the organisation is complex. Therefore, designing the right benefits and risk management strategy is essential for the business’s solvency, as well as employee satisfaction and retention. 

For example, traditional reinsurance strategies such as “lasering-out” coverage for certain high-cost drugs can lead to poor health outcomes, unnecessary expenditures, and lower employee satisfaction, and potentially impact talent retention and recruitment efforts. Similarly, if employees face high out-of-pocket expenses due to cost-sharing arrangements or limited coverage for specific drugs, coverage gaps may lead to lower patient compliance, and/or delayed or inadequate treatment, negatively impacting employee health and productivity.

Current industry approach to risk management options

To manage risk, most self-insured employers purchase stop-loss/reinsurance policies to protect against catastrophic claims related to high-cost drugs. Pharmacy benefit management (PBM) solutions may also be used to negotiate drug prices, manage formularies, and implement utilisation management strategies to help control costs. In some cases, self-insured employers may benefit from participating in purchasing coalitions to secure more favourable pricing for specific high-cost drugs or explore value-based agreements tied to clinical effectiveness.

Ecosystem approach to managing risk and costs of next-generation advanced therapies 

As the pharmaceutical industry continues shifting its focus to cell, gene, and biologic therapies with high price points and unanswered questions about long-term health outcomes, health plans and PBMs are demanding robust real-world evidence (RWE) analyses to demonstrate the clinical, economic, and patient value of these therapies needed to support coverage decisions. 

Obtaining high-quality data and proving the value of these new therapies often requires collaboration between various stakeholders, including payors, providers, pharmaceutical manufacturers, and patients—especially in the case of rare conditions when there may be limited patient populations. 

Managing risks and costs with the PayRx model

To help manage the risks associated with high-cost therapies, PayRx provides self-insured employers with an alternative, end-to-end, comprehensive and flexible set of solutions using its industry-first, precision risk management (PayRX PRM) platform that consolidates proprietary financial data, pharmacy and medical benefits data, and diagnostics for advanced therapies and prescriptions, augmented by electronic health records data from 90 percent of the US population to predict and protect against potential exposure. 

The PRM platform then matches the needs of the employer, employees, pharmaceutical manufacturers and health benefits administrators, affording them deeper insights into future drug pipelines, clinical pathways, pricing and reimbursement strategies. The platform produces a robust, lower cost solution to allow coverage of life-saving and life-extending therapies at better rates than traditional options.

PayRx’s solutions are available as a standalone or companion product to existing medical stop-loss policies. When coupled with stop-loss, PayRx provides gap coverage, as well as short and long-term strategies that prepare employers to confidently manage unexpected, high-cost claims, including cell, gene and biologics therapies, other treatments for rare diseases, and costly chronic conditions. 

The benefits of the PayRx programme include: 

1. Clinical and actuarial data-enabled insights into current and future resource utilisation and high-cost claims exposures using predictive analytics and evidence-based AI models

2. Integration of care management and risk management across pharmacy and medical benefits

3. Long-term savings strategies by removing the threat of premium hikes due to bad loss years

PayRx leverages access to reinsurance and capital markets through its unique relationships with, and backing from, reinsurers, investment banks and pension funds, bringing together healthcare data, actuarial models and risk transfer solutions. Using proprietary data and analytics, PayRx further helps employers navigate the challenges of covering high-cost therapies and highlights optimal cost and risk management strategies, thus enabling informed decisions. This results in short and long-term cost-savings while avoiding drastic claim spikes for high-cost therapies.

To help craft solutions to manage the risk of high-cost therapies, PayRx is also assisting global pharmaceutical manufacturers to better understand employers’ requirements around companion diagnostics for coverage of their high-cost therapies. Through this effort, PayRx provides actionable insights that enable pharmaceutical companies’ brand, health economics and outcomes research teams and market access teams to develop stronger payor value propositions for employers, pharmacy benefits management companies and health plans.

Conclusion

The financing of high-cost pharmaceutical therapies is a rapidly growing challenge for self-insured employers. To navigate this complex landscape successfully, employers must adopt a multifaceted ecosystem approach that combines innovative financing models, benefit design customisation, use of advanced analytics capabilities encompassing RWE data, and engagement with diverse stakeholders, including payors, providers, patients and pharmaceutical manufacturers. 

While high drug prices present formidable obstacles, proactive strategies can help employers manage costs while providing access to life-changing medical breakthroughs. By following the best practices outlined in this white paper, embracing the ecosystem approach to managing risks and costs of new medications, and collaborating with innovative vendors such as PayRx, self-insured employers can maintain competitive benefits packages, satisfy their employees, and secure their organisations’ financial stability.

Steve Gerst is a chief medical advisor at PayRx.

Stas Samarin is a digital strategy and product advisor at PayRx.

For any further questions - please contact PayRx at: inquiries@payrxinc.com

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